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The Uncertainty-Fueled Market Correction
00:40:12
Companies, investors, and countries are all having a hard time knowing what the future holds. And that makes forecasting hard.
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- [00:05]
Dylan Lewis
The tariff tables turn. This week's Motley Fool Money radio show starts now.
- [00:26]
Jason Moser
Everybody needs money. That's why they call it money. But you can give them to the.
- [00:35]
Dylan Lewis
Birds and be From Fool Global headquarters.
- [00:39]
Matt Argersinger
This is Motley Fool Money.
- [00:40]
Dylan Lewis
It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me over the airwaves. Motley fool senior analysts Jason Moser and Matt Argersinger.
- [00:47]
Jason Moser
Fools.
- [00:47]
Dylan Lewis
Wonderful to have you both here.
- [00:49]
Jason Moser
Yes, sir.
- [00:51]
Dylan Lewis
This week we've got our take on the big macro and also some perspective from someone who specializes in working it into his investment view. Also got earnings from Adobe and of course, stocks on our radar. Fools. This is one of those weeks where I think pretty much all investors can agree on the headline and the main story on the street S&P 500 officially entering correction territory this week, down 10% over the past month. The more growth oriented NASDAQ down even more. Matt. On the one hand, market is back to where it was in September of last year. On the other, we are in a very different economic reality now than we were then. A lot more concerns about tariffs and the global economic pict.
- [01:30]
Richard Bernstein
Yes, for sure, Dylan. But can Dan first cue the applause track? Because look, we're guys, we corrected like you said it. The S&P5 urgent is officially Dylan down 10%. See, we had it wrong all along. We needed to be down 10%. That's the correct. The quote correct price. This is just me ranting. I've never liked the term correction. It feels like saying the market is wrong. It was wrong and now it's correct. But let's talk about this quote correction. Stock market's down 10% as you mentioned. But a few interesting statistics here. This is courtesy of Bloomberg Research. It took only 16 trading days, guys, 16 trading days for stocks to fall 10%. That according to Bloomberg is the seventh fastest drop in the last 95 years. I don't know how many 10% pullbacks we've had in 95 years, but I'm sure we've had a lot. So that seems pretty fast. And most interesting though I think is since 1965. So that's 60 years non recession corrections, which I assume we're in and I emphasize non recession corrections have averaged a 16% drawdown. So we might still have room to fall, but recession corrections. So those markets that have come or have been accompanied by an economic downturn fall an average of 36%. So I'm just saying to investors out there, if you're looking for opportunities in the market, you Always should be. That's great, especially when the market is falling like this. But realize there might be more to fall if there's an economic fallout from everything that's going on.
- [02:59]
Dylan Lewis
Jason, so much of what we are seeing in the stock market seems like a reflection on businesses and countries even really having a hard time being able to look out and forecast effectively, anticipate effectively what will be happening and what they need to be able to procure, what their costs are going to look like. So many of those things, basically. Long way of saying uncertainty driving a lot of this.
- [03:20]
Jason Moser
Yeah, I think that's right. I mean, I think waking up every day to a new headline and nobody knows really what's going on. Right. I mean, tariffs on, tariffs off. Where do we stand on this sort of doge effort in maximizing efficiencies and what will the legal system allow in regard to that? I mean, this is obviously an administration that is going in here full throttle. It's interesting to think about President Trump. I think he sees the market as a real measuring stick for his performance. Right. That's common knowledge. I think we all kind of know that. I mean, so this is kind of a question of like, is this just short term pain for more long term gain? And we just don't know. The only answer to that question really is going to be through time. But I think Matty's points there in regard to recessionary corrections is really noteworthy because when you think about right now, we've got the Atlanta, Atlanta Fed projecting that this first quarter GDP is going to contract somewhere in the neighborhood around two and a half percent. That's the going money right now, at least now we'll have to see if that actually is the case. But if that is the case, then we have to really start focusing on Q2, because if those numbers come in for Q1, what like Bon Jovi said, we're halfway there, right. I mean, now all of a sudden we start talking about a recession if that contraction continues. And it's reasonable to at least ponder that that could be the case. Right. I mean, we've got that University of Michigan's consumer sentiment index, I mean, what, 57.9 down from 64.7? I mean, that's amazing, right?
- [04:47]
Richard Bernstein
That's a big month in a row, Jason, that that index has come down.
- [04:51]
Jason Moser
Yeah. And then you look at, there's a poll of 220 CEOs by chief executive magazine. It was just fielded here at the beginning of the month. And they saw that the outlook for business conditions over the next 12 months fell to the lowest level since November of 2012. Add on to that, I mean, sort of the unemployment picture. I mean unemployment claims filed in D.C. virginia and Maryland here alone were up 49% just last week. Now that's understandable given all of these job cuts and whatnot, but it just all leads to a picture of, as you said, Dylan, a lot of uncertainty which is just keeping investors really white knuckling a lot of this right now.
- [05:30]
Dylan Lewis
The escalating tariff story, a story in and of itself. But it also factors into this much broader one that we've been following for a while. Can the consumer hold up? Near term tariffs mean very likely higher costs being passed along to consumers. Matt, we have observed a tightening of the wallets. What's your read on spending right now?
- [05:49]
Richard Bernstein
Right, it's weakening. And you know, Jamo mentioned the Consumer Sentiment Index, which is, which is low. I think it comes down to. Yeah, our economy here in the US is driven by consumer spending. And if you look at comments out of Delta which warned of weaker demand for travel, Walmart CEO Doug McMillan was out saying quote, budget pressured customers and stressed behaviors among their customer base. McDonald's saying they're having a sluggish year. Dollar General, we heard from them that things were kind of bad. Costco, even Costco last week talked about kind of consumers shifting to lower cost food items. So there's just, and maybe those are affecting poor customers harder. But look, if the stock market falls further, you might even start, you know, start worrying about the wealth effect as well to higher spenders. And so bottom line, if the consumer continues to weaken, then we're likely heading toward a more dire scenario for the market. The more 36% drop that I talked about than this sort of vanilla 10 or mid teens drop. So this could be the 2022 scenario all over again.
- [06:47]
Dylan Lewis
Jason, you brought up the government efficiency initiatives. Wanted to spend a little time talking about Tesla. And Elon Musk, one of the worst performers in The S&P 500 year to date, shares down 35%, down almost 50% from 2024 post election highs. And Musk's behavior front and center. His ties to the Trump administration and government cuts have sparked a lot of backlash. Also seems that the Tesla brand is now in the realm of divisive politics and that may be affecting some European Tesla sales.
- [07:18]
Jason Moser
Yeah, I mean certainly the sentiment on Tesla sure has shifted now. I mean that's not uncommon. Right. This is, this has been a very polarizing company in stock and now obviously very polarizing leader. But we're seeing a lot of price cuts from investment banks across the board. Right? J.P. morgan, Wells Fargo, a lot of folks piling on right now. And you have to ask yourself the question, like, why is that happening? Is it because of Musk's political involvement? Is it because of a sort of stale lineup of vehicles? Is it because of competition? I think it's kind of a combination of all of it. But I mean, when you look at the numbers, I mean, across the globe, it does really look like they are seeing some serious declines. I mean, last month in Australia, 71% decline in sales. You look at Polestar, now, it's not just Tesla. Polestar also saw a decline of 11%. But geez, 71 to 11. Come on. February total in Germany fell 76%. Right. Despite overall EV sales rising about 31% saw Tesla sales decline more than 40% year over year in Norway, Denmark and Sweden. 26% slide in France. In China, much the same. To me, it'll be interesting to see because I think a big near term catalyst for Tesla would be the vehicle refresh that's coming up. But that I think is really going to tell us kind of how people feel about the brand, about Musk and his involvement. And I think that he's rubbing a lot of people the wrong way. It makes me think of an example. I'm going to refer back to John Mackey, former CEO of Whole Foods. He's on our board here at the Motley Fool. Wonderful guy. I always enjoyed talking to him. You learned so much from him. And I remember years ago he was talking to the investing team and he made the point. He was like, you know, I don't try to get out and espouse my political views as a leader of a company. It's like, because if I do that, I know I'm alienating immediately, like half of my customer base. And obviously that doesn't make for good business. It feels like Musk has kind of taken the other side of the coin on that bet. There's, and we're seeing some near term results here that are obviously causing some trouble for the company.
- [09:29]
Dylan Lewis
All right, coming up after the break, we've got earnings Updates from Adobe DocuSign and the story on the slopes with Vail. Stay right here. You're listening to Motleyful Money.
- [09:38]
Ricky Mulvey
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- [10:21]
Dylan Lewis
Welcome back to Motley Fool Money. I'm Dylan Lewis here on air with Jason Moser and Matt Argersinger and we have a couple sharp earnings reactions to wade through for the week. Jason Adobe posted numbers that beat estimates on the top and bottom line. Stock is down 10%. Walk me through this one.
- [10:39]
Jason Moser
Yeah, it's an interesting reaction given the actual report. It was a good quarter. I think Adobe is a bit underestimated at this point regarding the AI narrative and that is driving a lot of this. I mean, it's absolutely a very competitive space, many, many options and so they'll need to deliver, but the company is not sitting still. That said, I think the tools that they're putting out there while powerful and I've dabbled with them. So, I mean, don't get me wrong, they're going to need to get better and I'm sure they will, but I think we're going to see that around the AI content space in general. But, but getting to the numbers, I mean, it was $5.71 billion in revenue. That was a growth, revenue growth of, of 11% from a year ago. GAAP earnings per share $4.14 non GAAP earnings per share $5.08. That's up 13% from a year ago. And they exited the quarter with $17.63 billion of digital media annualized recurring revenue and that grew 12.6% from a year ago. So it's not like this company isn't growing. It absolutely is. But as is often the case, it's all about the future. And I think the market maybe is a little bit concerned in regard to the forecast there, maybe just was expecting a little bit more in looking at that. They're talking about earnings per share. They're guiding for here. GAAP earnings per share. They're guiding for $15.95 at the midpoint. Now that would represent 30% earnings growth from the year ago. Again, talking about a company that's growing here. If you look at the way that the market reacted to this stock today, now it's recovered a little bit, but it basically puts the stock at around 24 times forward earnings. I mean, that seems like a pretty good deal for a business like this. In the call Firefly, getting a lot of Attention there. Their new AI driven product there is mentioned 48 times in the call. That's their generative AI product that ultimately generates images, audio, now video. And again, like I said, I dabbled around it. It's pretty cool. It's neat stuff. But it does need to improve and again, I'm sure it will. But they, they offer so many different tiers with that service, ranging from basically a freemium at $0 to, to something that, you know, runs $200 per month. So I think having a number of different subscription tiers will be very helpful for them. And just sort of anecdotally, you know, I talk with Austin Morgan, he's in our multimedia department here at the Fool. He always really raves about how Adobe's tools are working and the developments they're making with it. He really likes it, says that the tools they're building into their products are great. So next week is Adobe Summit. That's sort of their flagship digital experience conference. We'll get a little bit more information on their sort of iterations and developments there. That'll be something worth paying attention to.
- [13:29]
Dylan Lewis
All right, switching gears and checking in on the slopes. Matt, you checked in on Vail Resorts and their report this week. What'd you see?
- [13:37]
Richard Bernstein
Well, it's, I hate to be, I hate to say this, but it's been pretty much a disaster for Vail over the last few years, if I have to be candid. They expanded too fast, I think lift lines have been too crowded. The skier experience has not been great. There was a ski patrol strike at Park City this past season, which, which wasn't a great reflection on the business. Management also bought back billions of shares over the last few years, really at the worst possible times. And that's capital they could really use right now. And really, three of the last four ski seasons have not been great weather wise. So just a storm of bad news for Vail Resorts. That's why the stock is at multi year lows. I do think we might be getting to the bottom of the slope here for the stock though, Dylan, the recent results were okay. If you look at season to date, skier visits were down 2.5%, but lift ticket revenue up 4%. Ski school dining revenue also up nicely. And then pre tax operating profits were up almost 8%. Once again, as they do almost every year, they're raising the price of the Epic Pass, a 7% increase from last year's price going to $1,051. And that's just the launch price, by the way. So that's a big jump in one year. But if you look, the Epic Pass actually has only increased by about 1% annually over the last five years. That's well below inflation. So this was kind of due for a big jump. And will that 7% increase or, sorry, affect demand? I don't think so. It has in the past. We'll know more as the year goes on. And I think management's doing an okay job now, improving efficiencies, improving wait times. They made a lot of capital investments. There are only so many great mountains out there. Vail happens to own a lot of them. And so the stock is down. You're getting a 5.5% dividend yield today. Multiple is not that expensive. I'm not calling a bottom here, but I do think we might be in a turnaround for the stock from this price.
- [15:26]
Dylan Lewis
Yeah, Matt, I was going to say the stock chart for Vail over the last five years looks a lot more like something I would like to ride down as a skier or as a snowboarder than the ride I'd like as an investor. But I think that 5%, I think 5.5% yield is starting to look pretty attractive to a lot of people because of that decline. Do you feel good about the sustainability of that dividend?
- [15:45]
Richard Bernstein
Well, they do have a lot of debt and the cash flows are under pressure right now. I think management's going to do whatever they can to defend the dividend, but they really need a good ski season. They need the rest of this season to be good and a good 2025, 2026 season.
- [15:58]
Jason Moser
This feels like a good comparable to Disney, right? Disney just raising those park prices every year, seemingly without fail. And Vail seems to be doing the same thing there. But do you feel like they can kind of keep on doing that, or. I mean, is it. Is there going to be a point where they just kind of have to back off a little bit?
- [16:16]
Richard Bernstein
I think there's pricing power there. And the Epic Pass is expensive as it is, is lower than the Icon Pass and other comparable ski passes, and it's the biggest one in terms of ski resort portfolio. So I think the demand is going.
- [16:28]
Dylan Lewis
To stay all right in a relatively bleak week for the market. DocuSign giving some investors, myself included, a couple reasons to be happy with their report. Jason, this looked like a pretty strong earnings result.
- [16:41]
Jason Moser
Boy howdy. I'm right there with you, Dylan. As a shareholder, this is a good week. Shares are just really taking off on this. I think a lot of this. The company continues to generate Actually really strong cash flow and I think that's going to continue as they continue to grow the top line and this quarter showed that there are signs of returning to that top line growth. They saw revenue of $776.3 million. It was up 9%. They also saw billings up encouragingly 11%. Non GAAP earnings per share $0.86. That compared to $0.76 from a year ago. Something I found in the call that I think is really encouraging. The number of large customers spending over $300,000 annually with with DocuSign grew both year over year and quarter over quarter. They now have 1,131 of those customers and that's up from just 1,075 from a year ago. It was their strongest quarter of that large customer growth in two years. In final, the dollar net retention rate ticked up slightly to 101% and that's coming off of historic lows of 98%. Just back in the fourth quarter of fiscal 2024 I thought we've got to I don't want to say he's a new CEO. He's been there for a little while there now. But Alan Teigason said the company has started to turn the corner on the core business and they've become much more efficient and I think the market's very encouraged by that. And then an acquisition they made mid 2024, a company called Lexion has added a lot of AI functionality to their agreement platform and we know, Dylan, it's all about AI these days.
- [18:18]
Dylan Lewis
On that efficiency note, Jason, for the full year, Docusign reporting over a billion in net income. Don't be fooled too, too much by that. Some of that is some income tax provisions flowing their way through. But on an operating basis they have gone up 6x operating income. Seems like a lot of the efforts that they are doing to scale their business and be a little bit more efficient paying off for investors.
- [18:39]
Jason Moser
Well, Dylan, profitability is a very good thing and we always love to see it.
- [18:44]
Dylan Lewis
Jason, Matt, we're going to hear a little bit more from you guys in a bit. Up next, we get another perspective on the macro picture, including the details on tariffs, America's trade deficit and the cocktail of how it all plays into the stock market. Stay right here. Bill's Think tomorrowful money.
- [18:58]
Dan Boyd
Like a fool I went and stayed too long I'm wondering if your love's still strong Baby, I'm still delivered I'm yours and that time I went and said goodbye Now I'm back and not a chain to Try deliver I'm your future in your hand I've done a lot of foolish things.
- [19:59]
Dylan Lewis
Welcome back to Motley Fool Money. I'm Dylan Lewis. Some topics deserve a deeper dive with the tariff swings and market volatility. This week we dialed up Richard Bernstein. He oversees a firm focused on macroeconomic top down analysis. In other words, he's got the data on trade and what tariffs spell for economies and consumers. Bernstein and my colleague Ricky Mulvey talks about the relationship between tariffs, trade uncertainty, and how it all flows into what we've seen in the stock market over the past few weeks.
- [20:27]
Unknown
We got a trade war brewing. We got a trade war. Game of chicken. Maybe a full out war, maybe a negotiation. How is this brewing? Trade spat changed your process, if at all at Richard Bernstein Advisors.
- [20:42]
Jason Moser
Yeah.
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Matt Argersinger
So, you know, I think, Ricky, the first thing we have to kind of understand is that the news flow is totally out of control right now. I mean, 25 years ago, legit. 25 years ago, I wrote a book that was called Navigate the Noise Investing in the New Age of Media and hype. That was 25 years ago. It's clearly more applicable today than it was 25 years ago. But the point of the book was that there's always going to be this news flow and a true investor is going to try to ignore that. That we know that there are certain rules of investing ways to build wealth and trying to react to the day to day, minute by minute gyrations is really a loser's game. And I think it's very important. I think if somebody tries to keep up with the news flow today, you're going to be ready for a rubber padded room. I just think it's so that's number one. Number two is that I think what's happening in this news flow right now is not that it's good news or bad news. Right. The politics tends to overwhelm everything. Everybody has to remember we're investors, we're not politicians. And so what we want is we want clear information. Whether the policy we agree with or don't agree with is really immaterial. Nobody's calling us up and asking us. But we need clear and consistent information so we can make investment decisions. I think that's the big issue that's going on right now is that whether it's the trade war, whether it's employment policies, you know, you name it, it's changing every 10 minutes. And I think that's very hurtful for the markets overall.
- [22:17]
Unknown
So then what are the, what are the storylines you're paying attention to because I understand the news is changing extraordinarily fast right now. But it seems we are entering a period of deglobalization. If tax cuts continue to pass, that's going to affect corporate profits. And at the same time, you're starting to see companies including Delta Airlines saying this macro uncertainty is going to is leading us to cut bas basically our revenue and profit forecasts. So I understand the headlines create a lot of noise, but there is meaning there. How are you separating that?
- [22:46]
Matt Argersinger
Absolutely. So I think take what you just said, Ricky, and kind of put it into a little longer term lens. Right. So you mentioned Delta. I'm not saying anything positive or negative about that particular company. But many companies now are having a lot of trouble forecasting their fundamentals. More uncertainty. Right. I mean, what you forecasted yesterday may be completely different today. That's uncertainty. Number two. You know, if you think about trade and everything else that's going on there, I mean, trade regulations changing within the day. Right. So how if you're an importer or an exporter or you have a supply chain, how you're keeping up with that, I have no idea. So what you have to do is you have to say, look, there is these for the R forces out there, like you mentioned, de globalization, one of our main macroeconomic themes is de globalization. And the combination right now of the fact that we're going through a period of deglobalization at a point in time where the United States has a massive and ever growing trade deficit that is a terrible combination for the US Economy. And what we're trying to do is we're trying to look for ways to invest to take advantage of that. In other words, we do think the capital markets are going to be smart enough to allocate capital to where it's actually needed within the economy. So you got to look at these themes. You have to kind of work out what's the symptom, maybe trade, you know, a tweet on trade versus what's the actual issue, which is deglobalization.
- [24:16]
Unknown
So let's, let's stay on de globalization because you may, your, your take is that it is disastrous for US Companies. The other side of that argument would say what we're actually doing is we're encouraging these great big companies to set up shop and create jobs in the United States. And this is actually going to be wonderful for the US Economy. And at the same time, these tariffs, these bills we're placing, this is like charging foreign countries a premium to Access a premium market the same way that you would pay for box seats at a New York Rangers game. In order to get access to those better seats, we're going to do a similar thing for access to this market. And there's going to be a period of transition, but really it's going to, it's going to shake out. And over the long term, the US Stock market will be fine. That may not be my personal opinion, but I'm trying to steel, man. The other side of your thing.
- [25:05]
Matt Argersinger
Absolutely. And as I can tell by what you just said, you can probably tell I have a Rangers jersey behind me, that I am a Ranger season ticket holder. So you could argue that tariffs can be an effective way to change the economy. If, and this is the big if, if there is underutilized domestic production. The problem is in the United States and the reason we have this monster trade deficit is we don't have production. We have bragged for decades now how we are a service oriented economy and not a production oriented economy. We're now feeling the other side of that. Right. If you want to build a steel plant, if you want to build an aluminum plant, if you want to build a refinery, anything like that, this takes years to do. You put a tariff in. Everybody has this notion, oh, well, that'll affect deployment next quarter or two quarters from now. No, it doesn't work that quickly. In the meantime, what happens when you have this massive trade deficit is that you stick it to the consumer. Here's a way to think about it, right? Is anything you are wearing right now, Ricky, Is anything you are wearing made in the United States?
- [26:16]
Unknown
My jeans say American Eagle on them, but I'm not entirely sure.
- [26:19]
Matt Argersinger
I guarantee you they're not made in the United States. And if they are manufactured in the United States and kind of sewn in the United States, the material is not from the United States.
- [26:27]
Unknown
So.
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Matt Argersinger
And that makes sense because in the last 30 years or 40 years, the United States has lost between Two thirds and 90% of our textile manufacturing capacity, depending on how you measure it, how you define textiles and all that kind of stuff. That's why I gave you the range. So if there's a 15% tariff put on clothes, we have a pretty simple choice. We can run around naked or we can pay 15% more for clothes. We have no choice. There is no domestic substitution to take that place. Will there be in five years? Will there be in 10 years? Maybe. But in the meantime, there's no domestic substitution. So tariffs immediately stick it to the consumer.
- [27:04]
Unknown
You have A blog post on your site from back in February titled Historically Confident Investors Meet a Historically Uncertain World. And there's a claim that investors risk taking during the technology bubble in 98, 99 seems small in comparison to today's aggressive portfolio positioning. Yes, we think of the tech bubble as a time where people got way too excited about the Internet in terms of companies that did not have revenue in some cases and where profits were way far out. Today's investors were in a lot of Mag 7 stocks which are dominant, which do make a profit. Why is it so much more aggressive now than it was more than 20 years ago?
- [27:44]
Matt Argersinger
Right. So a couple of things. Number one, there is this notion that the tech bubble 98, 99, 2000 was just like pets.com and that, you know, it was all these silly companies that have no. That had no real purpose and didn't make any money. That's not really quite true. There were a lot of big companies that took part in that bubble big time and their stock suffered dramatically. Like again, not endorsing the stock in any way, don't misunderstand the point, but IBM, kind of a big company that had a lot of cash flow in 99, 2000, was caught up in that. GE was caught up in it. Cisco was a smaller company than it is today, but had a lot of cash flow back then. Hewlett Packard would be another one. Right. I mean, there were a lot of big companies back then as well. It wasn't all pets dot com. So I don't think we should say, oh wow, these are the biggest and the best and therefore we can have a tech bubble. Well, in the tech bubble, the biggest and the best were in the tech bubble as well. It wasn't as exciting, admittedly, versus something like pets.com, but it was very meaningful and had a major impact on the market. Second thing I would point out in terms of investors willingness to take risks. So there's a number of things that we look at for this, but there's two in particular that we pointed to. One is the conference board's consumer confidence survey. I'm sure everybody knows the conference board. They go out every month, they survey individual households for all kinds of different questions to say, are you confident about the economy or not? One of the questions in that survey is will the stock market be higher in 12 months? And at the end of January, that was the highest it had ever been in the 30 or 40 year history of the consumer confidence survey. And it was much higher than it was during the tech bubble People are more confident today that the stock market is a good place to be than they were during even the tech bubble. That's number one. Number two is bank of America keeps track of private client portfolio statistics and one of the statistics they keep is the equity beta of the private client portfolio of private clients portfolios overall. So this is hundred tens, if not hundreds of thousands of portfolios in aggregate. And at the beginning, and one of the things they monitor is the equity beta of, of the overall holdings of the overall private client universe. And, and at the Beginning of the BUL in 2009, private client equity beta was 0.75. Right. One being kind of equal risk to the market as a whole. It was 0.75. And I'm sure a lot of people remember after the global financial crisis, people, you know, equity investors were under their desk in the fetal position. Nobody wanted equities, it was bonds, bonds, bonds. And if you twisted people's arms, maybe you could get them to talk about large cap, high quality, dividend paying stock. Well, we started writing about the equity beta, I don't know, a year and a half ago or so. When I got up to about 1.2, we said, huh, this is kind of interesting. They were very risk averse. Now they seem to be equally, equally risk taking. That 1.2 went to 1.4 and the 1.4 at the end of January was an absolutely mind boggling 1.7. That is just a massive amount of equity risk that people are taking now. You know, and I know what's going on here. This is the concentration of the market, how nobody wants diversification. Everybody has said to me, oh, diversification, you mean diversification? Exactly. That's that 1.7 beta talking to us and telling us that people don't want the basic building blocks of building wealth anymore, they want risk. And there it is, it's at 1.7 beta. So that's interesting. Okay, you could say, well yeah, why not, why not take a lot of risk? Well, that's juxtaposed versus this historically uncertain environment which is now kind of punching people in the face. You know, if you look at things like the NFIB small Business survey, you'll see that small businesses consider this the most uncertain environment in the, I don't know, 40, 50 year history of the survey. If you look at the academic measures of trade uncertainty, I'm sure nobody will be surprised to hear that this has hit an all time record, eclipsed by a ton. The uncertainty we saw in the first Trump administration by the way before that, before the first Trump administration. The other time you saw trade uncertainty was in the early 90s at the beginning of NAFTA. I would argue that was the beginning of this globalization period, the real period of globalization. And that was equally as uncertain. Right. Nobody. What is globalization going to do? Oh, no, we don't really know. And then that calmed down for an extended period of time. And then with the first Trump administration, we saw it pop up and now it's like, you know, skyrocketed compared to that. I'm sure nobody's surprised to hear that, but you combine this incredibly uncertain environment with this incredibly certain investor base. That's why you're getting volatility now, I would argue, is that that's, you know, the uncertainty is winning and people are revaluing equities. They're requiring a higher risk premium for equities, equities. And the more uncertainty we get, the more we should expect this revaluation to occur.
- [32:54]
Dylan Lewis
Listeners, you can catch the latest market musings from Richard Bernstein and company over on XB Advisors coming up next. Jason Moser and Matt Argersinger are back with me to talk about the stocks and other things on their radar this week. Stay right here. You're listening to Motley Fool. As always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against some pirates selling anything based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Motley fool only picks products it personally recommend to friends like you. I'm Dylan Lewis, joined again by Matt Arger Singer and Jason Moser. And fools, it is March 14, aka PI Day, and I appreciate you guys both taking time away from the mathematical festivities to join me on the show. We may not be the ones focusing on algebra, calculus, all of that type of stuff. That's what the calculators are for. It doesn't mean we're not going to celebrate. Big pizza, getting in on the PI Day celebrations, Papa John's, Pizza Hut, Domino's, all with promos to help consumers celebrate. If you're ordering from one of those big chains, Jason, which one are you going to?
- [34:15]
Jason Moser
You know, I can't even go to those big chains, so I'm not gonna go there. Okay. I fit very strong feelings when it comes to pizza. And I'm gonna tell you the first and foremost, the best pizza is the pizza that I make here in my own house. I've been working for years on crafting this. I've got a dough recipe, a sauce recipe, and it is d. Wait for it. Lightful. It's delightful. But if I gotta go chain, you know, I'm gonna actually go a little bit of a different direction here. There is a chain, there's one of these restaurants in. In downtown Alexandria. It's called Emmy Squared. So if you like Detroit style pizza, and I've kind of gotten turned on to this stuff, that is a wonderful place to give, to give a try there. That big, thick, deep crust with the cheese all around the heavy sauce. Emmy Squared. Give it a shot, guys. You're local.
- [35:01]
Dylan Lewis
Matt, are you gonna go from one of the big three or like, Jason, are you gonna go off menu here?
- [35:05]
Richard Bernstein
I'm going off menu too, sadly. But. And I am gonna call out. This is crazy. I'm calling out a frozen pizza brand.
- [35:11]
Jason Moser
Wow.
- [35:11]
Richard Bernstein
Which is urban pie, which we get from Whole Foods now and then or other grocery stores. Is awesome. I don't know. It's so good, you know, put it in the oven, 15 minutes later you have most delicious kind of thin crust pizza you can imagine. Urban pie.
- [35:26]
Dylan Lewis
Jason, for the folks who maybe want to make a pizza at home and celebrate on their own, any suggestions on how to get good pizza dough?
- [35:34]
Jason Moser
I mean, well, pizza dough, you got to make it on your own, right? Keep it simple. Follow those Neapolitan style sort of recipes there. Don't add too much to it, but I think the key to a good crust, just make sure you have a pizza stone for your oven. Unless you've got, you know, a pizza oven in your backyard, which I don't yet, but I'm considering making that investment.
- [35:52]
Dylan Lewis
That's a life goal. We all want one. Yeah. All right, let's get over to stocks on our radar. Our man behind the glass, Dan Boyd is going to hit you with a question. Matt, you're up first. What are you looking at this week?
- [36:02]
Richard Bernstein
Well, like Brian Nickel Dillon, I am back to Starbucks ticker Sbux. To me, this is mostly about valuation. Stock is down about 20% in just the past few weeks. Back below $100 at today's price. I think you can bet on a turnaround and that Nickel will be successful in kind of writing the business. And you've got some amount of margin of safety in the stock. I've got an earnings model I'm working from that I think looks pretty reasonable, if not conservative when it comes to Starbucks store count its comp sales, its profit margins, and I think from today's price, I've got a decent shot at double digit total returns with the dividend included if Nickel's efforts are at least moderately successful. And I think he's already taken some nice steps towards solving kind of both the order expediency and the in store experience. Too early to tell of course, but I have renewed confidence. I also like the fact that they raised the dividend 7% last fall. That kept a 14 year annual streak of increases intact. That to me was a big signal of confidence that I think the earnings picture is going to improve. I was hoping they simply wouldn't cut the dividend. So to see a 7% raise was nice. The stock yields about 2.5% today. That's more than double the S&P 500. So I kind of like Starbucks right now.
- [37:16]
Dylan Lewis
Dan Matty bringing a household name, one that needs no explanation, one that people might be within a thousand feet of good chance just with their footprint. You got a question or you got a comment on Starbucks Ticker? Sbux Matt, do you go to Starbucks?
- [37:29]
Richard Bernstein
I do, I do. Dan. Okay.
- [37:34]
Dylan Lewis
Well I guess that settled that. Jason what are you looking at this week?
- [37:39]
Jason Moser
Matty by the way, my girls love their simplified menu and absolutely are raving about the new drink lineup, so love the pick there. I'm going with Ansys, a company we don't really talk a lot about here. Ticker is a nss. Ansys is a simulation software and services company. They serve end markets including aerospace, defense, automotive, electronics. You get my gist there. Now Ansys is a company. There was a deal announced over a year ago that Synopsys is going to acquire Ansys and this thing is really dragged on due to regulatory concerns. But in what was seen, I think is one of the biggest hurdles to clear, we saw the UK Competition and Markets Authority, otherwise known as the cma. They gave the go ahead after some divestitures from, from, from an to give their blessing on this acquisition and they will not refer it to a more in depth phase two probe. So the deal is expected to close sometime here in the first half of the year, which means it should be happening anytime now. There are a couple of regulatory hurdles to clear, but it's something that looks like it's going to happen.
- [38:43]
Dylan Lewis
Dan, A question about Ansys Ticker ANSS.
- [38:47]
Richard Bernstein
Not really a question, Dylan, more of a comment. Ansys headquartered in Canonsburg, Pennsylvania, which is so far western Pennsylvania, it might as well be Ohio, but still, that's a cool name for a town.
- [39:00]
Dylan Lewis
There you go. Jason do you have any reactions to that, or are you just gonna let that one sit there?
- [39:03]
Jason Moser
Listen, I love the comments more than the questions. You know that I've been very clear all along, Dan.
- [39:09]
Dylan Lewis
Really kind of helping you on your radar stock, giving you even more information about the company. I have to imagine that that might be the one going on Dan's watch list, but I'm not sure. Dan, which one?
- [39:17]
Richard Bernstein
Hard to bet against coffee, Dylan.
- [39:19]
Dylan Lewis
Hard to bet against coffee. And you're full of surprises this week.
- [39:22]
Jason Moser
There we go.
- [39:23]
Dylan Lewis
Jason, Matt, appreciate you guys bringing your radar stocks. Dan, appreciate you weighing in. That is going to do it for this week's Motley Fool Money radio show show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.